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Oracle (ORCL) shares are under pressure after reporting third quarter results that missed expectations.
RBC Capital Markets managing director of software Rishi Jaluria joins Madison Mills on Morning Brief to take a closer look at the earnings print and the subsequent stock move.
"It was overall a pretty mixed quarter," Jaluria says, highlighting that the company missed its own guidance for the third quarter despite its strong backlog growth.
The analyst, who cut his price target for Oracle stock to $145 from $165, tells Yahoo Finance, "My concern is the sustainability of some of this growth that they've signaled," given that they're "also seeing capacity constraints; they're taking longer to get data centers online than expected."
Jaluria notes that Oracle's growth may be "temporary or nonsustainable" as cloud provider competitors, like Amazon (AMZN) and Microsoft (MSFT), as well as artificial intelligence (AI) players, build more data center capacity and no longer need to rely on Oracle.
It's now time for some of today's trending tickers. You can scan the QR code below to track the best and worst performing stocks of the session via of Finance's trending tickers page. First up, Oracle, missing third quarter earnings estimates and issuing a disappointing forecast for the current quarter. Still, the company expects its cloud infrastructure business to boost revenue over the next two fiscal years. Joining us now with more, we've got Rishi Jalaria. He's RBC Capital Markets MD of software. Rishi, you also lowered your price target for Oracle to 145 from 165 following the results. What's the problem here?
Yeah, and thanks so much for having me. Look, I think it was overall a pretty mixed quarter. As you correctly pointed out, they missed their own guide on on Q3. Their Q4 guidance was implied to be a little bit lighter than expected as well. You couple that with strong backlog growth, which which was expected, we can get into the puts and takes there, but really my concern, uh, is is is the sustainability of some of this growth, right? That, um, they've signaled they're also seeing capacity constraints. They're taking longer to get data centers online than expected. And really, I think, you know, in spite of the the stronger than expected growth that we're seeing out of OCI, which is their competitor to AWS and to Microsoft Azure. In spite of that, the a lot of that success, I think has some temporary or non-sustainable growth drivers, including selling of access capacity to some of those companies, right? To to Microsoft, to meta, to uh, cohere to to others. And that's why we we felt kind of coming out of this, not surprised to see the pull back in the stock this morning.
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This post was written by Naomi Buchanan.